Final answer:
Using the formula, inflation rate = nominal interest rate - real interest rate, with the real interest rate at 2.1% and the nominal interest rate at 5.4%, the inflation rate is found to be B.3.3%.
Step-by-step explanation:
To calculate the inflation rate given a real interest rate and a nominal interest rate, we use the formula: inflation rate = nominal interest rate - real interest rate. In this student's question, the real interest rate is 2.1% and the nominal interest rate is 5.4%. Applying the formula, we get:
Inflation rate = 5.4% - 2.1%
Inflation rate = 3.3%
Therefore, the correct answer is b. 3.3%. This is because the real interest rate represents the increase in purchasing power provided by an investment, adjusted for changes in the price level due to inflation or deflation. When you subtract the real rate from the nominal rate, you are left with the inflation rate, which is the rate at which the general price level for goods and services is rising, and subsequently, purchasing power is falling.
SUM UP of the final answer:
- The formula for calculating the inflation rate is: nominal interest rate - real interest rate.
- Given the real interest rate is 2.1% and the nominal interest rate is 5.4%, the inflation rate is calculated as 5.4% - 2.1% = 3.3%.
- The correct answer to the student's question is b. 3.3%.